Economics: PayDay Loans- Bastards or Black Sheep?

[brewster]

Is this thread ripe to discuss reverse mortgages, or should that be it's own Econ thread?

[Martin Hash]

Heirs are anti-Reverse mortgages but otherwise they make perfect sense. However, the ideology of aristocracy is strong here.

[DBTrek]

Preying on people who have lack of opportunity is a time-honored Libertarian tradition.

To some folks, having to repay money you took according to the terms you freely agreed to is called "being preyed upon".
Of course, these same folks try to bend every narrative to show themselves as a victim of something.


"I took the loan, but so much stuff happened to me since then that I shouldn't really have to pay it back. Now these lenders are preying on me."

[Hanarchy Montanarchy]

Since the notion of getting a payday loan to keep from starving was already introduced as a mark in their favor, I think it is fair to expand on that idea.

If I am compelled to enter a contract on threat of death, am I really entering it 'freely?'

[Speaker to Animals]

Since the notion of getting a payday loan to keep from starving was already introduced as a mark in their favor, I think it is fair to expand on that idea.

If I am compelled to enter a contract on threat of death, am I really entering it 'freely?'

What threat of death?

You aren't going to die if your power goes out.

Payday lenders provide high risk debt servicing to people the banks wouldn't even touch. Their customers choose to pay the high interest rather than lose power for a week. I'd choose losing power, personally, but that's just me.

[Speaker to Animals]

Also, what the people counter-signaling payday lenders don't seem to grasp is this: the banking system they favor over payday lenders isn't an alternative. It's basically the payday lender model refashioned, more dishonestly and more destructively, for the middle class. You're the suckers. How much of your life was spent working for bankers?

In the grand scheme of things, payday loans are not remotely a problem compared to what the banks have done to us. You are just conditioned to signal for your master, like those slaves who would cheer on the raising of their price in the slave market, not understanding that it only makes it far more difficult for them to ever purchase their freedom.

[DBTrek]

Since the notion of getting a payday loan to keep from starving was already introduced as a mark in their favor, I think it is fair to expand on that idea.

If I am compelled to enter a contract on threat of death, am I really entering it 'freely?'

The only way you can feed yourself is by taking money from a payday lender?

What happened to your credit cards, SNAP, WIC, TEFAP, SFNMP, benefits, and where did the local food banks and all your friends and family vanish to? Even the jails have closed? Goddam!

... and I'm sorry, but the local Hanarchy Montarchy's of your state have decided to save you from payday lenders by shutting them down, so you're going to have to starve.
But hey, at least you won't starve in debt, right?

[Penner]

Most of us are probably aware of payday loan places. These are the lenders that make short term loans to generally low income people. The popular sentiment (at least among politicians) is the these places prey on the poor and engage in predatory lending practices by charging astronomical interest rates. Worst of the worst, right?

That's one way to look at it.

Consider looking at these operations with a more critical eye. It's true, the interest rates they charge are high. The NYT once ran a story proclaiming that these places make loans at annualized interest rates of 312%.
But . . . who takes a year to repay a payday loan? That's like saying a hotel room costs $42,000 a year.
People don't rent hotel rooms by the year, nor do they take out payday loans for that long. That's not the purpose of a payday loan.

Now, consider the amount and duration of a payday loan. the WSJ says the average payday loan is $300 and lasts for two weeks. What sort of risks do payday loan places face that might explain their interest rates? Let's list a few:

• * Interest must compensate for the fact the loan may not be paid back at all by the high risk borrower
  * Interest must compensate for the fact that the borrower likely has no collateral of sufficient worth to mitigate the risk of the loan
  * Interest must compensate for the time that the money is loaned out instead of being put to alternative uses
  * Interest must compensate for the various fixed costs and labor costs of processing the loan

Now, put yourself in the shoes of the lender. How much do you need to charge to make it worth your time to hand $300 to a high risk borrower with no collateral, plus pay your own employees to process that loan paperwork, plus pay all additional fixed costs involved in securing the loan? You'll have to make significant money from this type of transaction to justify using money this way instead of putting it to an alternative use.

For reference, many payday lenders will charge about $15 in interest per $100 lent.

The Do-Gooder Effect: Consumer advocates in Oregon were able to get a law passed restricting these places to 36% annual interest. Since most payday loans conclude in two weeks or less, this restricted lenders to making about $1.50 per loan. This amount is insufficient to cover the cost of processing the loan, much less any of the risk that needs to be mitigated. What happened? Three-quarters of the payday loan places in Oregon shut down.

Who are the losers?

Not the payday loan entrepreneurs. They have several other types of businesses they can invest in. The losers ware the low income people who desperately need $300 right now. They once had a short term lender that could hand them cash on the spot. Now they have nothing.

These places can literally get working class people/poor people into debt really easily since they have to not only pay the interest but the actual amount loan by a certain date or they will start to owe the payday loan money. It can get so bad that it will ruin your credit, your house and/or your car can be taken by them (since they want you to put a collateral on the loan just in case you can't pay it all off at once), etc...

[Speaker to Animals]

I mean.. get real..

The Walmart greeter, living in an apartment and using a payday lender occasionally to catch up on bills is far freer than that guy down the road in the overpriced Mcmansion, fucking around with maybe half a million in debt when you total up the auto loans, mortgage, and student loans. Most of middle class guy's year is spent literally slaving for banker's (pay off that interest!!) whereas Walmart greeter guy is maybe down fifty bucks in interest for his short-term loan. Then middle class guy goes online to talk about how evil the payday lender is and how the Walmart greeter is getting fleeced. LMFAO.

[Hanarchy Montanarchy]

Since the notion of getting a payday loan to keep from starving was already introduced as a mark in their favor, I think it is fair to expand on that idea.

If I am compelled to enter a contract on threat of death, am I really entering it 'freely?'

What threat of death?

You aren't going to die if your power goes out.

Payday lenders provide high risk debt servicing to people the banks wouldn't even touch. Their customers choose to pay the high interest rather than lose power for a week. I'd choose losing power, personally, but that's just me.

In the halcyon and eternal spring of poverty, no one ever dies from lack of electricity.

The whole argument was that this is a vital economic tool for the poor, and it is borderline cruel, and certainly ignorant to deprive them of it by placing too many restrictions on the practice. Now the argument is 'no one is forcing you to take a payday loan.' Forgive me if a I can't keep up with the shifting sands of this argument.